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Mortgage rates dropped significantly in early January and have remained relatively flat this week.

In 2022, inflation and Federal Reserve policy moves helped push rates up to record highs. But as price growth cools and the Fed is able to slow its pace of hikes to the federal funds rate, mortgage rates are expected to continue falling this year.

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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.

By plugging in different term lengths and interest rates, you’ll see how your monthly payment could change.

Mortgage rate projection for 2023

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022.

But many forecasts expect rates to begin to fall later this year. In their latest forecast, Fannie Mae researchers predicted that 30-year fixed rates will trend down throughout 2023 and 2024.

But whether mortgage rates will drop in 2023 hinges on if the Federal Reserve can get inflation under control.

In the last 12 months, the Consumer Price Index rose by 6.5%. This is a significant slowdown compared to where inflation was earlier this year, which is a sign that mortgage rates may start coming down soon as well.

If the Fed acts too aggressively and engineers a recession, mortgage rates could fall further than what current forecasts expect. But rates probably won’t drop to the historic lows borrowers enjoyed throughout the past couple of years.

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When will house prices come down?

Home prices are starting to decline, but we likely won’t see huge drops, even if there’s a recession.

The S&P Case-Shiller Home Price Index shows that prices are still up year-over-year, though they’ve fallen on a monthly basis over the past few months. Fannie Mae researchers expect prices to decline 4.2% in 2023, while the MBA expects a 0.6% decrease in 2023 and a 1.2% decrease in 2024.

Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates may start to drop next year, which would remove some of that pressure. The current supply of homes is also historically low, which will likely keep prices from dropping too far.

Fixed-rate vs. adjustable-rate mortgage pros and cons

Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.

ARMs typically start with lower rates than fixed-rate mortgages, but ARM rates can go up once your initial introductory period is …read more

Source:: Business Insider

      

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